When there are herding behaviors on the financial market, the efficiency market hypothesis failsbecauserational expectation fails because a lot of traders become permanently optimistic.rational expectation fails due to correlated information.wisdom of crowd fails due to correlated information.wisdom of crowd fails because a lot of traders become permanently optimistic.

The efficient market hypothesis is also known as efficient market theory. It explains that the stock…

Answered: When there are herding behaviors on the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Short questions a. Describe the first and second Welfare Theorem b. Describe the difference between risk aversion, risk neutrality and risk prefering c. Describe and explain the non-satiation assumption d. Describe and explain the difference between adverse selection and moral hazard e. Describe and explain the difference between income effect and substitution effect
can you explain the Axioms of expected utility by The von Neumann and Morgenstern (1944)
Suppose that every driver faces a 2% probability of an automobile accident every year. An accident will, on average, cost each driver $14,000. Suppose there are two types of individuals: those with $112,000.00 in the bank and those with $3,500.00 in the bank. Assume that individuals with $3,500.00 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. Assume that both types of individuals are only slightly risk averse. In this scenario, the actuarially fair price of full insurance, in which all damages are paid by the insurance company, is . Assume that the price of insurance is set at the actuarially fair price. At this price, drivers with $112,000.00 in the bank likely buy insurance, and those with $3,500.00 in the bank likely buy insurance. (Hint: For each type of driver, compare the price of insurance to the expected cost without insurance.) Suppose a state law has been passed…
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Use the figure below to answer the following question. Let In represent Income when health, let Is represent income when ill. Let E[I] represent expected income. Point D represents Utility Is у в an actuarially fair and full contract an actuarially fair and partial contract X E[1], the utility from Expected income with no insurance an actuarially unfair and full contract an actuarially unfair and partial contract с IH U(I) Prome
Classify cach statement as either true or false. A tournament compensation scheme is subject to ability risk. Josephina receives the largest bonus because she had the highest sales last month. Jana had the second highest sales and receives the second largest bonus. This is an example of a tournament compensation scheme. Professors who grade on a curve are using a tournament compensation scheme. Answer Bank truc false 00
5. Understanding risk aversion Suppose your friend Juanita offers you the following bet: She will flip a coin and pay you $1,000 if it lands heads up and collect $1,000 from you if it lands tails up. Currently, your level of wealth is $3,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 A+ C B WEALTH (Thousands of dollars)
When a portfolio has a known future date for a particular outlay to occur, it is most likely that ___________ will be used by the portfolio manager as part of their immunisation strategy. a. Net Worth Immunisation b. Classical Immunisation c. Tools of Immunisation d. Contingent Immunisation e. Target Date Immunisation
3. A risk-neutral principal hires an agent to work on a project at wage w. The agent's utility function is: v(w)-g(e), where v(w)= Jw and g(e)=e/2 The agent can choose one of two possible effort levels, e¡ = 4 or e, = 6 . If the agent chooses effort level e, = 4 the project yields 100 with probability 1/4 and 0 with probability 3/4. If he chooses e, = 6 the project yields 100 with probability ½ and 0 with probability ½. The reservation utility of the agent is 0. (a) Suppose the effort level chosen by the agent is observable by the principal. Find the contract chosen by the principal. Show graphically in terms of contingent utilities v(w,00) and v(w.)

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